Quick Analysis of Proposed Final Judgment:
The DOJ- Anti-Trust Division has proposed a settlement that includes
a judgment of five years duration spelling out specific prohibited
conduct and compliance and enforcement procedures. Enforcement is
through a three-person Technical Committee selected by Microsoft and
the Plaintiffs in the case. In addition, Microsoft will agree to
provide more than one billion dollars in reconditioned computers,
software, services and training to some fourteen percent of school
districts nationwide.

While the proposed final judgment will curtail certain egregious
Microsoft practices, such as retaliation against OEMs for
distributing non-Microsoft middleware and operating systems, it does
little to erode Microsoft's current operating system/office
productivity software monopoly- built in part through the very
anti-competitive practices the judgment seeks to curtail. As
such, it implicitly rewards such practices. Therefore,
in my opinion, the judgment is a cave in by the Department of
Justice despite the billion dollars in new school computers-
computers loaded with- you guessed it- Microsoft Windows. The
judgment will do little to encourage healthy competition and
technical innovation.

1996-1997

Microsoft's claim that the Internet Explorer browser is
an integral and integrated component of the Windows OS is certainly valid when one likes
at current incarnations of Internet Explorer and associated components
/applications (Windows 98, Java, ActiveX, Exchange, Outlook, etc.). Even
Netscape's stated or implied direction to replace all operating system UIs with their
"browser" helps bolster the legitimacy of this goal, as does the increasing use
of Sun's cross platform Java technology. After all, if its a reasonable goal for
Netscape/Sun, then certainly it is understandable that Microsoft would have a similar
target (with however a significantly different ulterior motive). Perhaps the
issue is whether earlier incarnations of Explorer such as versions 1, 2 and 3
with associated components were an integral and integrated part of the Windows OS. At
least from a functional user standpoint the answer is clearly no. Whether the
Microsoft software design team was building hooks and component technology back in
1993-1995 to allow a gradual and smooth merging of browser/OS technology is unclear. Even
if this was the case, it is doubly unclear whether this early "primordial"
technology was integral to the Windows OS.

In any case I believe Microsoft never prevented
a hardware manufacturer from bundling Netscape Navigator with their products. If they in fact attempted to coerce hardware vendors to not bundle their
products with Navigator, then Microsoft clearly acted illegally. Of course, forcing hardware vendors to
offer their (Microsoft) products while at the same time essentially giving away their
browser to the public is obviously a predatory marketing practice and seeks to gain an
unfair advantage by leveraging their operating system dominance.

In 1993/1994/1995, browsers were not the monolithic
applications they no are now. Even by hard drive space limits of three years ago, Netscape
Navigator and Internet Explorer were small, "baby" applications. Hence it was
not prohibitive for a hardware manufacturer to offer both alternatives to customers. Many,
not only offered Navigator and/or Internet Explorer, but also Mosaic, Cello and others. In
fact, an informed consumer might want multiple browsers on their systems to take advantage
of the unique functionality each offers. Certainly web designers have this requirement as
they must design for compatibility across browsers.

However, it is true that by forcing vendors to offer
Internet Explorer 1/2/3 with Windows, Microsoft gained a "testing lab"
for their browser technology among the broad computing public. A "special window of
opportunity" if you will that their technology did not necessarily warrant at the
time. This helped them improve Internet Explorer to the point where it is today- the
most feature rich browser/UI alternative for the Windows 95/NT environment. Coupled with
the give-a-way of their browser product- it also formed the basis of what was clearly a
predatory marketing strategy.

Recently the DOJ has claimed that Microsoft has effectively
not complied with the original court order since they offered hardware vendors either a debilitated
version of Windows 95 or an outdated version if the vendor choose not to
offer IE 3.X functionality. Microsoft has retorted that they are complying with the exact
terms of the court order. While Microsoft may be technically correct and has the right to
seek legal clarification, the bottom line is that Microsoft can offer an
up-to-date version of Windows 95 minus the option to install the IE 3.X/4 browser. This
product would have IE 3/4 compatible DLLs and other software components but would not
offer the user the option to install the browser. My question however is this: "How
many hardware vendors will actually not offer the browser install
option?" However much some of them may hate or be jealous of Microsoft- theenduser will not accept a solution that does not offer them the choice
of installing IE 3/4. Hence the DOJ's efforts in this particular area are
a waste of taxpayers' money- protecting the taxpayer from what they want. My belief is that that Microsoft should have the right to
offer whatever features and/or products it wants to as long as in the process it does not
prevent or make it unreasonably difficult for a competitor, large or small, to offer
comparable or superior technology.Perhaps Microsoft's pricing, distribution and corporate acquisition strategy does
just that- unfairly attempts to nullify or limit competition. For a perspective on
Microsoft, probably shared by the DOJ and others, see the NetAction web site and applicable "cyber action
issues."

At least in Intel's view, Microsoft does limit the
competitive playing field. Quoting from a 1996 article in Fortune Magazine entitled, "A Conversation with the Lords of Wintel," Gates and Andy Grove (CEO of
Intel) had the following interchange:

Gates said, "Intel deserves a lot of credit for stepping back [from
development of NSP/multimedia technology]."

Grove replied, "We didn't have much of
a choice. We basically caved."

Gates objected to that characterization, but Grove stuck to his line.
"We caved," the Intel chairman said. "Introducing a Windows-based software
initiative that Microsoft doesn't support . . . well, life is too short for that."

Of course, Intel itself faces anti-trust charges.

Note: While it is evident
Microsoft has cleared a major hurdle with IE 4/5 (now integral to Windows
98/2000) and should gain dominant market share in
the Windows browser arena, they have by no means established that the Windows OS is the
most desirable OS to access the Internet with. As such they have not neutralized the
Netscape/Sun/IBM/Intel future threat/long term goal of essentially trivializing the choice
of an OS/UI. Perhaps it is Microsoft's thinking (hope) that by the time the desktop is
"trivialized" (no longer a profitable market segment), they will have mid to
large companies hooked on their back office products. Of course, along
with Microsoft's traditional adversaries, the Linux OS and compatible open
source applications provide strong competition in this arena. Finally,
Microsoft, despite its investments in some telecommunications and web portal
players (including its own MSN), still is unable to control or completely
shape the direction of the Internet. The merger of AOL, Time Warner and Netscape further
underscores this. However, a few key Microsoft acquisitions or mergers could
significantly change the landscape- increasing the threat of Microsoft being
able to control and dominate the future of computing.

Commentary on Judge
Penfield's Rulings (Below): I
see little evidence that Microsoft hindered Java's success (See
below). Clearly,
Microsoft applied monopolistic pressure on Intel to not develop
platform level NSP software. Microsoft also used unfair business
practices to neutralize Netscape's Navigator. Microsoft accomplished
both, in part, through undue pressures on OEM computer
manufacturers. What is perhaps tragic (for Microsoft) is that these
practices were probably unnecessary to its' overall success.

Microsoft's contention that its' market dominance
could shift dramatically in as little as 18 months is true, if the
company is inept in its business/market planning. Therefore this
argument is specious and not grounds for contending it is not a
monopoly. Its' argument that the "sky will
fall," if Penfield's ruling holds, is ludicrous and self-serving. What Microsoft fails to understand is that it is not its'
success that is the cause of Penfield's rulings but rather its
monopolistic practices that are a threat to competitors and create
barriers to entry.

Finally any court remedy should not so weaken
Microsoft that it will be unable to innovate or compete. Perhaps
Microsoft's break up will be a "blessing in disguise" - encouraging real innovation and not merely the acquisition of
promising technology companies. Will a Word 2050 release really
serve the consumer's best interest? I think not.

UNITED STATES OF AMERICA, Plaintiff, v.
Civil Action No. 98-1232 (TPJ) MICROSOFT CORPORATION, Defendant. STATE OF
NEW YORK, exrel.

33. Microsoft enjoys so much power in the market for
Intel-compatible PC operating systems that if it wished to exercise this
power solely in terms of price, it could charge a price for Windows
substantially above that which could be charged in a competitive market.
Moreover, it could do so for a significant period of time without losing
an unacceptable amount of business to competitors. In other words,
Microsoft enjoys monopoly power in the relevant market.

34. Viewed together, three main facts indicate
that Microsoft enjoys monopoly power. First, Microsoft’s
share of the market for Intel-compatible PC operating systems is extremely
large and stable. Second, Microsoft’s dominant market share is protected
by a high barrier to entry. Third, and largely as a result of that
barrier, Microsoft’s customers lack a commercially viable alternative to
Windows.

409. To the detriment of consumers, however,
Microsoft has done much more than develop innovative browsing software of
commendable quality and offer it bundled with Windows at no additional
charge. As has been shown, Microsoft also engaged in a concerted series of
actions designed to protect the applications barrier to entry, and hence
its monopoly power, from a variety of middleware threats, including
Netscape’s Web browser and Sun’s implementation of Java. Many of these
actions have harmed consumers in ways that are immediate and easily
discernible. They have also caused less direct, but nevertheless serious
and far-reaching, consumer harm by distorting competition.

410. By refusing to offer those OEMs who requested it a
version of Windows without Web browsing software, and by preventing OEMs
from removing Internet Explorer — or even the most obvious means of
invoking it — prior to shipment, Microsoft forced OEMs to ignore
consumer demand for a browserless version of Windows. The same actions
forced OEMs either to ignore consumer preferences for Navigator or to give
them a Hobson’s choice of both browser products at the cost of increased
confusion, degraded system performance, and restricted memory. By ensuring
that Internet Explorer would launch in certain circumstances in Windows 98
even if Navigator were set as the default, and even if the consumer had
removed all conspicuous means of invoking Internet Explorer, Microsoft
created confusion and frustration for consumers, and increased technical
support costs for business customers. Those Windows purchasers who did not
want browsing software — businesses, or parents and teachers, for
example, concerned with the potential for irresponsible Web browsing on PC
systems — not only had to undertake the effort necessary to remove the
visible means of invoking Internet Explorer and then contend with the fact
that Internet Explorer would nevertheless launch in certain cases; they
also had to (assuming they needed new, non-browsing features not available
in earlier versions of Windows) content themselves with a PC system that
ran slower and provided less available memory than if the newest version
of Windows came without browsing software. By constraining the freedom of
OEMs to implement certain software programs in the Windows boot sequence,
Microsoft foreclosed an opportunity for OEMs to make Windows PC systems
less confusing and more user-friendly, as consumers desired. By taking the
actions listed above, and by enticing firms into exclusivity arrangements
with valuable inducements that only Microsoft could offer and that the
firms reasonably believed they could not do without, Microsoft forced
those consumers who otherwise would have elected Navigator as their
browser to either pay a substantial price (in the forms of downloading,
installation, confusion, degraded system performance, and diminished
memory capacity) or content themselves with Internet Explorer. Finally, by
pressuring Intel to drop the development of platform-level NSP software,
and otherwise to cut back on its software development efforts, Microsoft
deprived consumers of software innovation that they very well may have
found valuable, had the innovation been allowed to reach the marketplace.
None of these actions had pro-competitive justifications.

411. Many of the tactics that Microsoft has employed
have also harmed consumers indirectly by unjustifiably distorting
competition. The actions that Microsoft took against Navigator hobbled a
form of innovation that had shown the potential to depress the
applications barrier to entry sufficiently to enable other firms to
compete effectively against Microsoft in the market for Intel-compatible
PC operating systems. That competition would have conduced to consumer
choice and nurtured innovation. The campaign against Navigator also
retarded widespread acceptance of Sun’s Java implementation. This
campaign, together with actions that Microsoft took with the sole purpose
of making it difficult for developers to write Java applications with
technologies that would allow them to be ported between Windows and other
platforms, impeded another form of innovation that bore the potential to
diminish the applications barrier to entry. There is insufficient evidence
to find that, absent Microsoft’s actions, Navigator and Java already
would have ignited genuine competition in the market for Intel-compatible
PC operating systems. It is clear, however, that Microsoft has retarded,
and perhaps altogether extinguished, the process by which these two
middleware technologies could have facilitated the introduction of
competition into an important market.

412. Most harmful of all is the message that
Microsoft’s actions have conveyed to every enterprise with the potential
to innovate in the computer industry. Through its conduct toward Netscape,
IBM, Compaq, Intel, and others, Microsoft has demonstrated that it will
use its prodigious market power and immense profits to harm any firm that
insists on pursuing initiatives that could intensify competition against
one of Microsoft’s core products. Microsoft’s past success in hurting
such companies and stifling innovation deters investment in technologies
and businesses that exhibit the potential to threaten Microsoft. The
ultimate result is that some innovations that would truly benefit
consumers never occur for the sole reason that they do not coincide with
Microsoft’s self-interest.

Microsoft claims, in effect,
to have been surprised by the "draconian" and
"unprecedented" remedy the plaintiffs recommend. What it
proposes is yet another round of discovery, to be followed by a
second trial - in essence an ex post and de facto bifurcation of the
case already considered and rejected by the Court.

Microsoft's profession of surprise is not credible
- despite their surprise, compounded no doubt by the Court's refusal
on May 24th to allow discovery and take testimony on the issue,
Microsoft's attorneys were promptly able to tender a 35-page
"Offer of Proof," summarizing in detail the testimony 16
witnesses would give to explain why plaintiffs' proposed remedy, in
its entirety, is a bad idea. Within a week they added seven more.

From the inception of this case Microsoft knew,
from well-established Supreme Court precedents dating from the
beginning of the last century, that a mandated divestiture was a
possibility, if not a probability, in the event of an adverse result
at trial.

These cases have been before the Court, and have
occupied much of its attention, for the past two years, not counting
the antecedent proceedings?. The Court is convinced for several
reasons that a final - and appealable - judgment should be entered
quickly.

Despite the Court's Findings of Fact and
Conclusions of Law, Microsoft does not yet concede that any of its
business practices violated the Sherman Act. Microsoft officials
have recently been quoted publicly to the effect that the company
has "done nothing wrong" and that it will be vindicated on
appeal. The Court is well aware that there is a substantial body of
public opinion, some of it rational, that holds to a similar view.
It is time to put that assertion to the test. If true, then an
appellate tribunal should be given early opportunity to confirm it
as promptly as possible, and to abort any remedial measures before
they have become irreversible as a practical matter.

There is credible evidence in the record to
suggest that Microsoft, convinced of its innocence, continues to do
business as it has in the past, and may yet do to other markets what
it has already done in the PC operating system and browser markets.
Microsoft has shown no disposition to voluntarily alter its business
protocol in any significant respect. Indeed, it has announced its
intention to appeal even the imposition of the modest conduct
remedies it has itself proposed as an alternative to the
non-structural remedies sought by the plaintiffs.

The proposed final judgment is represented to the
Court as incorporating provisions employed successfully in the past,
and it appears to the Court to address all the principal objectives
of relief in such cases, namely, to terminate the unlawful conduct,
to prevent its repetition in the future, and to revive competition
in the relevant markets. Microsoft's alternative decree is plainly
inadequate in all three respects.